Security Summit 2016: Fighting Income Tax Refund Fraud

Leaders from the IRS and state income tax agencies, as well as executives from the private sector tax industry, gathered in June in an effort to stop identity theft tax fraud.

Some changes from the 2016 tax season that impacted the amount of criminal activity reported included requiring tax software customers to create 8-digit passwords and establish security questions. These enhanced security features make accessing sensitive data harder for criminals.

Software providers also shared about 20 confidential data elements from individual income tax returns with state and federal tax agencies to assist in locating potential fraud. These elements provide information enabling the IRS to identify returns prepared quickly by automated programs (usually an indicator of fraud).

These initiatives, among others, helped the IRS stop $1.1 billion in fraudulent refunds, which increased from the $754 million stopped the previous year. The IRS also doubled the amount of returns and refunds flagged for further review. The efforts of the security summit cut almost in half the number of identity theft affidavits filed.

Anticipated programs to implement in 2017 include a W-2 Verification Code test that requires taxpayers to enter a 16-digit code when prompted by software. Summit leaders are also working to identify additional data elements on returns from individuals and corporations that would help authenticate the identity of the taxpayer.

The Identity Theft Tax Refund Fraud Information Sharing & Analysis Center will also launch in 2017. It’ll serve as an early warning system by collecting and analyzing tax-related identity theft schemes.

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